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Loss Of Symantec Does Not Slow Down Digital River

Posted on Thursday, Oct 7th 2010

According to a U.S. Census Bureau report, U.S. retail e-commerce sales for the second quarter of the current year grew 1.5% over the previous quarter to $37.2 billion. Compared with the previous year, e-commerce retail sales grew 13.7% and now account for 3.8% of total retail sales. However, over the same period, overall retail sales grew 7.5%.

Digital River’s Financials

During the quarter, e-commerce player Digital River (NASDAQ: DRIV) too managed to surpass market expectations. For Q2, revenues of $81.8 million with EPS of $0.08 exceeded market targets of revenues of $82 million with EPS of $0.05.

Earlier last year, Digital’s biggest customer, Symantec, had announced its intention to not renew Digital’s contract. However, Digital River is well on its way to overcome the loss and recently scored a big win by extending the scope and duration of its existing contract with Microsoft. Now Digital River will also build, host, and manage an e-commerce store for Microsoft that will support the sale and fulfillment of Microsoft and third-party software as well as consumer electronics products to customers in the United States.

The company projects revenues for the current quarter to be $77.6 million compared with the market expectations of $81.2 million. EPS of $0.13 was also lower than the Street’s projections of $0.14.

Digital River and Online Gaming

Digital River continued to extend its reach in online gaming and earlier last quarter acquired the remaining 81% share in FatFooGoo, a Europe-based, in-game and e-commerce service provider, for $7 million in cash. Through FatFooGoo, Digital River has already launched several in-game e-commerce solutions for leading game titles and has contracts with seven global game publishers for their services. Its e-commerce solution offers services that include global payments, fraud prevention services, inventory management, player-to-player marketplaces, auction capabilities as well as the use of virtual goods, currencies, and electronic wallets to the game publishers.

Digital River and Online Education

The company also sees significant growth in the online education segment. It recently acquired Journey Education Marketing, a reseller of software and tools for students, faculty, educational institutions and public school districts in the U.S. K-12 and post-secondary academic markets. Digital River is looking to leverage its online distribution channels with Journey Ed’s academic distribution channels to create cross-selling opportunities for their software, consumer electronics, and game clients.

Digital River and SocialStream

Digital River is also working on using social networking sites such as Facebook and Twitter to help clients. It recently launched a new tool, SocialStream, that connects marketers to their social campaigns so that they can launch and manage e-store promotions over multiple Facebook and Twitter accounts while capturing resulting sales metrics.

Their stock is trading at $34.38 with a market capitalization of $1.4 billion. It touched a 52-week high of $41.00 in October of last year.

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